Discussion of Finance and Wall Street, and Dreaming of Pitchforks.

Category Archives: Derivatives

On Wall Street, bonus time comes a little before fine season, usually. Fines — for improper practices and fraud by financial corporations — are exacted mostly by three federal agencies (the SEC, FINRA, and CFTC) and a huge host of state agencies. For the biggest banks and stock trading firms, this happens throughout the year, EVERY year.

Here are some of the biggest fines Wall Street firms and the Big Banks have had to pay in recent years:

1. $722 million, JPMorgan Chase — For its role in the 2009 wreckage of a sewer refinancing attempted in Jefferson County, Alabama, JPMorgan was fined this amount by the SEC. The bank allegedly paid bribes to county officials in order to get the refinancing contract with the county. The deal was fraught with derivatives as part of the loan. Jefferson County is now bankrupt, sewer rates for residents have skyrocketed, and they are in endless debt.

There were more municipalities to file for bankruptcy that year too, for very similar reasons, in multiple states.

2. $550 million, Goldman Sachs — This fine was demanded of Goldman Sachs in July 2010 (but was still pending, as of March 2011) by the SEC, who sued the Wall Street firm for fraud related to only one mortgage security.
Abacus 2007-AC1 was the name of that security. The Abacus deal involved John Paulson, famous hedge fund manager who has probably made more than anyone else in shorting funds. Goldman Sachs failed to disclose to investors — who were going long on the deal — that Mr. Paulson was involved in choosing the components of that bundle of mortgages… and that he was also betting against it.

3. $515 million, Bank of America — Fined in 2004 for permitting improper rapid trading of mutual funds in its Nations Fund. At least half was for investor restitution.

4. $285 million, Citigroup — In December 2011, Citigroup was fined this lordly sum relating to a CDO containing toxic subprime mortgages. It is still in question, as U.S. District Court Judge Jed Rakoff didn’t like it, since they are not required to admit to any guilt for the sales.

5. $280 million, JPMorgan Chase — In June 2011, JPMorgan Chase paid this huge fine for its “Squared CDO-2007” deal, which resembled the “Abacus” of Goldman Sachs. Just like Goldman, JPMorgan had failed to let investors know that another party betting against the fund had helped make it.

6. $215 million, Citigroup — Way back in 2002 Citigroup paid $215 mil to settle a case brought by the FTC claiming that part of their company, The Associates (later CitiFinancial) deceived customers to get them to refinance at interest rates amounting to usury.

7. $137 million, Bank of America — This may be one of the most egregious cases, with a sadly inadequate fine, of all the fraud, collusion and predatory practices seen in the Big Banks and stock firms during the last few years. It was found in 2010 that a conspiracy to rig bids on municipal bonds contracts had been carried out among the biggest banks. JPMorgan Chase, UBS, Wachovia, and others were implicated along with Bank of America. They took turns being “awarded” contracts in dozens of local bonds derivatives contracts.

The SEC demanded for its fine only $36 million; but another $101 million was added to the penalty by multiple state and federal agencies. It is estimated to have cost taxpayers over $1 billion.

……. As huge as these amounts seem, they are tiny in relation to the sums earned by the respective companies. For instance, what JPMorgan CHase paid for the Squared fines was less than 2 days’ income that quarter. In 2006, Citigroup grossed $38 billion from subprime home loans…. wait for it…. and their net profit that year was $28 billion.

Some days on Wall Street, either you catch the fish or the harafish catches you.

Harafish is Egyptian and means the urban poor. It may be a slang term.

Bad things happen to vacant houses, when mortgage processors have gone rogue and the poor — that is, the homeless — have nowhere to go. NBC “Today” Show host Ann Curry just found out that a homeless man had been living in her empty $2.9 million townhouse on New York City’s Upper West side. The man was said to have been there for about a year. Curry and her husband have been renovating the house “for about eight years,” while living in Gramercy Park. It has been a magnet to other homeless persons too.

And why not? City shelters may have no space, and are sometimes dangerous. The homeless are chased out of public spaces like Central Park. Urban poor have been taking over rich people’s abandoned homes for centuries, just like in the novel The Harafish by Naguib Mahfouz; although the story’s set in Egypt it rings a bell here.

The other fish story I’d been thinking of happened late last year. Remember when Bank of America changed the locks and shut off utilities to a house they had nothing to do with? A doctor came home from vacation and found signs all over his house saying Bank of America was foreclosing on it. The doctor had no mortgage with them, no connection whatever. He breaks open his door and the whole place reeks of rotting halibut and salmon he’d stored in his freezer before leaving — 75 pounds of it. If someone had been home, maybe that wouldn’t have… yeah, if a homeless person had been inside, maybe he’d have found the fish and taken them out before they made the place smell so bad. Maybe.

Either way, the Wall Street banks, mortgage industry, and the financial companies who helped create the changed economy we are now enjoying — are clearly responsible for a long, long chain of adverse events.

Wall Street Bonuses! Did you get yours yet? No? You must not work on Wall Street, then! You don’t matter in this world!

Down to business.

I have to confess that I descended into the bowels of the earth yesterday, and visited the BileMaster. And I drank some of the brew he makes. It’s awful; tastes like quinine mixed with Gatorade. But you find you can’t stop drinking it, so I had a lot. **

Afterwards, your vision is tinged sort of greeny-yellow with red streaks running down it. Or maybe those red streaks are just the blood running into my eyes from the gash on my head. I don’t know how I got that. I don’t really remember what I did most of the evening.

Today, I find I hate everything. Filth surrounds us. And everyone is a crook, I think. I look around and I see crooks on every side. Crooks, crooks, crooks….

I’m really sorry; I don’t usually talk like this. It’ll take another day or so to get back to normal, so I’ll just get this off my chest and out of my system while I’m waiting to recover my usual sweet self and sunny outlook. So read this, you bastard!

Again — I’m sorry. Hard to control myself.

…..

The President says it was “instant gratification” that fueled the bust of the economy? Not precisely. Instant gratification is to blame for the proliferation of the microwave, Tivo, millions of TV channels, and lots of other stuff like that. The growth of the economy is not equal to the bust of the economy. And that’s what the “culture” of instant gratification helped along: the growth. Not the bust.

It was people doing things that they found they could get away with, because the general public didn’t know about it. It was hidden, greedy crime. That’s what started the bust. Then it was the mismanagement of all the financial institutions dealing with the outcome of that hidden greediness.

No one in the past seemed to consider the big lack of savings accounts on the part of the middle class “the economy” — so let’s not call it that now. Our savings never really figured into things, at least in the last half-century. Only our spending did.

“The economy” still doesn’t care about us. But it will when we’re older, or broke, and out on the street. Then we finally become part of “the economy” because we’re so very visible. Big, out on the streets, demanding answers. Just like Godzilla.

The Duplicitous Products

Back in the early 90s, I thought that America’s main product that the world needed, or at least wanted, was military force and weapons. (Both our army itself, and our weapons manufacturing.) It seemed that the world’s use of us was to make us the police officer of the globe. Or so it seemed to me for about five minutes.

Now, the U.S. supplies the world with things it didn’t really ask for. Except maybe the bankers and finance guys. They would have wanted these things.

What are our products? The credit default swap. Wall Street bonuses as a pay system. The bundled, insured, diced-up bunch of toxic loans. The practice of demanding from customers multitudes of hidden fees that no one thought of charging for, until lately. Duplicitous products of finance and business!

Did you know that fully HALF of the people who received loans from companies like Countrywide, who ended up with Adjustable Rate Mortgages and subprime loans, actually qualified for prime rate loans? That’s fifty percent. That is NOT the poor being enabled to buy houses. That’s regular borrowers duped into signing stuff they didn’t know they were signing. They were conned into putting their names down for ballooning mortgage payments.

This is as good, or better, than the scams of the eighties, when banks were scammed by fake borrowers who took out big loans to flip real estate and other stuff, and eventually just walked off with the money. Of course the fake borrowers were usually also people from banking, who knew how to work the banking system.

This is as good as Enron. As good as manipulating the energy market of the largest state in the nation. As great as Wall Street bonuses. As good as the Bush election in 2000.

…

If you don’t own a bunch of stock, WHY on earth do you worry how the stock market does? (And why are the news media trying to make it so important?) That’s like taking the temperature of your neighbor down the block to see if YOU have a fever or not.

WHY is the credit default swap still a legal transaction? Or is Wall Street simply a bookie operation? Is AIG one?

WHY hasn’t shorting stock been severely restricted already?

I suspect everything and everyone in business now. That’s what the stream of revelations of the machinations of the financial corporations has done to me. For instance, I turn on the TV, there’s this American Idol show running over its time into the next hour. I wonder why — because that never happens. TV ad time is so expensive.

It was planned, I think. A little gimmick that made some sneaky people money in a new way. In the ten minutes of that show overlap, sensation/surprise Adam Lambert sang so prettily. He was:

1) Seen by a whole lot of people who never ordinarily watch American Idol. These accidental viewers were waiting for the show Fringe, which has a very different audience.

2) Missed by the regular viewers of Idol who DVR’d the episode, who probably set their recording devices to correspond with the normal time of the show. They missed the overrun of 10 minutes.

3) Yanked off Youtube.com, which in the first few hours afterwards, showed that video of the last 10 minutes. Now it does not, and people are rabidly searching for it. (He was that interesting, yes.)

4) Sold hugely on iTunes. That 10-minute performance from TV (trimmed down) is now for sale there. The planners managed to keep it exclusive by making it run past its time.

Just an interesting little experiment that was probably very successful.

But the bigger arena of business artistry is elsewhere: the fees that credit card companies, banks, cell phone companies, and other companies have found they could charge us. More examples of American creativity!

It’s hard to list all those newfangled fees that have cropped up in the last year or two. We’ll post a short list of some examples soon. And you’ll soon be noticing those and zillions more, every time you open your eyes. Or your mail.

**The BileMaster evidently sold a batch of his brew to Kenya once. http://news.bbc.co.uk/2/hi/africa/1025120.stm And Alan Turing (father of the Turing Machine) may have eaten an apple dipped in it. It’s bad stuff.